Since 2008 the peripheral Eurozone states have been in a continuous recession as a result of public debts that have skyrocketed, further complicating recovery from the financial collapse. In addition to the crisis itself, the debt stricken states requiring financial aid are forced by financial institutions known as TROIKA to implement severe measures of austerity in order to safeguard the greedy banks of Germany and France. In essence the reason for austerity is to prosper the financial sector that created this mess in the first place, and instead of paying for it themselves, they make the people suffer. Instead of increasing privatizations and cutting key safety nets for the poor and the growing unemployed, I propose punishing greedy investors and banks through eliminating them through nationalization and creating a public EU banking sector to provide capital for businesses and mortgages for the people as well as bonds for government.
According to the Guardian in 2011 the public debt in Greece was worth more than 130% of GDP, in addition the balance of payments deficit was worth 9%, this debt was bought by the banks as a mean of increasing profits. Now when they realized that Greece might not be able to return the payments, the bond market is increasing yields on new bolds thus higher debt servicing for Greece. The debt will essentially prosper the banks and investors who are protected by Germany and France since most of them are German and French banks. As a result to this Germany and France wish to keep their money and so impose draconian austerity on the Greek, the Spanish, the Portuguese and the Irish, to save the excessive wealth of the bankers. Greece has cut their pensions by 40%, half of the 1.2 million people unemployed cannot afford health insurance as unemployment and family benefits have been ruthlessly slashed, in addition to the billions of euros cut in health expenditure. Is this fair?
No it isn’t. However there is an alternative to austerity and poverty, an EU public banking sector. If the banking sector was to be nationalized and brought under the hands of the EU then the debt could be defaulted without significant effects on the economy as long as the banking sector is recapitalized by the members of the union and that initial liquidity is ensured. As foxerblog.oanda.com states, the increase of private debt due to the credit bubble and the eventual collapse that followed, has decreased consumption per household by 3.3% and 3% in countries like Denmark and the Netherlands, the numbers are much higher in countries like Greece. If the banking sector was nationalized without compensation this debt can be completely written off as long as the banks are recapitalized through public funding, meaning that private consumption will increase and that public spending will not have to be cut so drastically as all pasts debts from the private sector are defaulted.
Until right now, and probably for the rest of this recession, EU states have favored the banks over the people by making the people suffer through harsh austerity measures. If we nationalize what belongs to the 1% and carry out similar operations via the state, we do not only ensure long term economic efficiency as credit bubbles can be dealt with better, but we also alleviate the pressure on the people and the government and spending can return to reasonable levels. In addition the factors which contribute to the fact that Greece and other southern European states remain in recession, will successfully be overcome. These factors include low demand and consumption, and public and private debt which can be defaulted. The public banking system is the ultimate remedy. Bail out the people not the banks!